The psychology of paying $1.99 vs. $2

The price that appeals to you is an indication of your thinking style.

It’s not so much how you feel about a penny; it’s about how you view it. (Photo: hd connelly/Shutterstock)

No, it doesn't matter whether you're frugally minded and believe in "a penny saved is a penny earned." Whether or not you're more likely to buy something with the .99 cent suffix has more to do with your psychological thinking style than thriftiness.

For years now, retailers have priced things for a penny cheaper based on the assumption that people will be more likely to buy it — and that's true, but only for shoppers who researchers call "analytic thinkers." In a study published in the June 2018 issue of the journal Marketing Letters, psychologists examined "the traditional belief that consumers pay more attention to the dollar digits and less attention to the penny digits."

The team from Baylor University's school of marketing did four tests on 942 subjects, and they found that analytic thinkers were more likely to be swayed by nine-ending pricing than holistic thinkers. If you took Intro to Psych in college, you might recognize these two designations: "Analytic thinking involves understanding a system by thinking about its parts and how they work together to produce larger-scale effects. Holistic thinking involves sensing large-scale patterns and reacting to them," according to Dr. Russ Dewey's online textbook, Psych Web.

Holistic vs. analytic thinking

Neither style of thinking is better or worse than the other; they're just different, as Ankush Chopra, a professor and author of "The Dark Side of Innovation," explains in the video above. To be a great artist, musician, or big-picture thinker, holistic thinking is important — it's about context, and intuition is important. Many careers like those in science or law, reward analytic thinking, which looks at parts and units, and is specific and logical. Of course, the most successful people will be able to do both kinds of thinking, though generally holistic thinking, linked to creativity, is more difficult to teach than analytic thinking.

So those people who are analytic thinkers will see a price of $1.99 by looking at the individual numbers, and will prioritize the first number because they know this is usually the most important one when it comes to price. "Holistic thinkers tend to view all price digits as a whole and are less subject to the nine-ending price effect," Lingjiang Lora Tu, Ph.D., professor of marketing at Baylor and the study's lead author, told Phys.org.

However, the type of thinking allows holistic thinkers to see the whole rather than the parts goes out the window when they're stressed or distracted.

"Our findings suggest that irrespective of consumers' thinking style, nine-ending prices are most likely to be effective in situations that strain consumers' resources, such as when shoppers are time-pressured at the checkout counter or distracted by background music or occupied with an interactive product demonstration," Tu said.

This study was done with the idea that marketers should know about these differences in thinking style and keep them in mind when they're pricing things for different types of people. But anyone who buys stuff can benefit too, by figuring out what kind of thinker you are, and then keeping that in mind when the signs blare "sale!" — and reminding yourself that nobody makes the best decisions when they're distracted.